It’s an interesting dilemma. The Alberta Government is suffering a revenue crisis at the same time the province’s economy is growing at twice the national average and unemployment is the lowest in the country.
It must be giving the proponents of trickle-down economics a big headache.
In a nutshell, the “trickle-down theory” argues that lower taxes puts more money in the hands of people and corporations–which leads to more consumption and investment– more jobs–and finally more government tax revenue.
The architect of the trickle-down theory, Milton Friedman, never considered the probability that freed-up money would be siphoned away from the jurisdiction that gave up the tax revenue.
For example, many Albertans have used their savings, pensions and disposable income to invest in homes down South and live up to six months away each winter. They become economic drivers for those states, not Alberta.
Yet when snowbirds return, there is an expectation that our medical services, government pensions and seniors’ facilities will be there for them when they need it.
The same is true of corporations that outsource jobs. Take for example Calgary-based Imperial Oil Ltd.’s and U.S. parent, Exxon Mobile Corporation’s decision to outsource large fabrication contracts for their Kearl oil sands project to Korea. It is Korea’s economy that benefited, not Alberta’s.
Yet at the U.S./Canada border, Exxon/Imperial Oil expect to have weight-bearing roads in place to transport these huge components to Fort McMurray. These companies also expect well-trained post-secondary graduates to fill operating positions and have no qualms about adding extra government costs to support temporary worker programs.
Now there is absolutely nothing wrong with Canadians choosing to be snowbirds, nor them having an expectation to access Canadian health care and benefits on their return. And it is a corporation’s job to maximize profits for shareholders so if out-sourcing jobs does it, that fulfills their mandate.
But once money, which normally would have been paid as taxes, leaves the province without creating jobs, investment or consumption then the trickle-down economic theory falls flat on its face.
Trickle-down economics works in a closed or semi-closed economy. In a global economy, the jurisdiction with the low-tax regime eventually jeopardizes its own financial security. The money that would have been collected in taxes is gone and is not returning, yet the need for government services continues unabated.
It’s similar to pushing fresh water down oil wells to generate more production. Invaluable, life-sustaining fresh water is lost forever.
Ronald Reagan became the first champion of trickle-down economics in the 1980’s. That combined with the promotion of free trade agreements, reduced protectionism and globalization has, within 30 years, taken the U.S. to its financial knees.
None of us like higher taxes, but it’s a trade-off. Stable funding for health, education, seniors’ care, policing, municipalities, infrastructure, or continued yo-yo budgeting.
One year we’re drunken sailors spending like fools, the next we’re slashing and burning programs near and dear to our hearts.
When are the collective “we” going to get over the notion that we’re somehow entitled to the lowest corporate and personal taxes in Canada yet demand the best services?
It’s a hard reality to face, but for the sake of long-term financial stability, the government must address ALL of Alberta’s financial problems—spending, non-resource revenues, savings and expectations.
Premier Allison Redford has the opportunity to show gutsy leadership and take the political flak necessity to save us from ourselves. To address all our budget problems, especially non-resource revenues and expectations, will take moxie on the part of the governing Conservatives. The budget delivered on Thursday will show just what Premier Allison and her Caucus are made of–politics or substance!
